20. Choose the correct answerand discuss with concrete examples:
If the development process is characterized by what we have called "modern sector
enlargement", the relationship between GNP per capita and inequality in the distribution of
income can be expressed as
a. a strictly decreasing relationship b. a strictly increasing relationship c. no relationship d.
first increasing and then decreasing
a. a strictly increasing relationship
Explanation:
According to the concept of "modern sector enlargement", as the development process progresses, the modern sector (typically consisting of industries, services and technology) expands, leading to overall economic growth. This growth generally benefits those who are already better off and have access to opportunities in the modern sector. As a result, income inequality tends to increase.
Concrete example:
Let's consider the hypothetical scenario of a developing country where there is a significant increase in foreign investment and the establishment of new high-tech industries. This leads to an influx of foreign capital, creating job opportunities in these new industries. The wages and incomes offered in these modern sector jobs are higher compared to traditional sectors like agriculture or small-scale manufacturing.
As a result, individuals with the necessary skills and education to work in the modern sector benefit from the increased income opportunities. They see a significant rise in their income levels, contributing to an increase in GNP per capita.
However, those who lack the required skills and education, or those who are engaged in traditional sectors, continue to earn low incomes. Their GNP per capita remains stagnant or grows minimally.
In this example, as the development process leads to modern sector enlargement, income inequality increases, resulting in a strictly increasing relationship between GNP per capita and inequality in income distribution.